testamentary gift challenged
When a
testamentary gift is challenged
Nancy Golding is a tax partner in the BLG Calgary office, as well as the National and Regional Leader of the Family Wealth Counsel Group. Nancy works exclusively in the areas of estate planning, and estate and fiduciary litigation. Nancy is one of the Canadian representatives on the STEP Worldwide Council.
CHARITY
FAMILY
NANCY GOLDING
“After the Court decision, the charity and the spouse worked together to maximize the estate.”
At times, the initial gratefulness and appreciation of a testamentary gift from a donor changes for a charity when that gift is challenged or a claim is made against the estate by a family member. The charity and the deceased donor may have been ad item as to the gift to be given on death even though it may have been part of a lifelong gift plan of the deceased but the family may not be in agreement.
Advice to Advisors MAY 2016
8
When a
testamentary gift is challenged CHARITY
FAMILY
but there is also an issue of the public’s perception of the charity and its reputation. Most charities do not wish to be seen to be involved in family fights or to be taking assets away from deserving family members. It can be a difficult decision to determine how far does the obligation of the charity go to its donor?
There is always a risk of a gift agreed upon with a donor being somehow thwarted on death but charities are at times in a precarious position if this is due to a claim against the estate from a family member. Charities not only have a fiduciary obligation to their donors to ensure a gift contemplated is completed.
Defining “charitable” behaviour is ultimately available to it in the end. This approach does not necessarily mean the charity is not living up to its duty to a donor. Family members do have legal rights to claim against an estate and the facts relied on often occurred over the course of years of family history which is usually not known to the charity.
There are a variety of responses from charities with differing results and consequences to a claim against an estate by a family member. There is a continuum of responses from no response at all to the charity being heavily involved in the litigation. Some charities take the “scorched earth” position that they will fight to the end to ensure a gift given is received. After all, if donors cannot count on a charity to fight for the gift, as the donor is no longer alive, then donors may think twice about giving a gift to that charity. Should the charity have to get involved in family affairs and relationships? A gift was given by the now deceased donor and based on the premise of testamentary freedom the charity should be able to rely on getting the gift. This is the rationale behind this type of response. There is a note of caution with this approach which may temper the lengths to which the charity will go to obtain the gift. In a recent case of an elderly spouse making a dependants relief type claim against her abusive husband’s estate, the residual beneficiary charity adopted a scorched earth approach. In the end, the widow received the estate and the charity paid the widow’s legal costs as well as all of its own legal costs after a lengthy battle. The charity was also admonished by the Court for not exhibiting very “charitable” behaviour.
With the latter approach a charity can still undertake due diligence to determine:
• what is in the estate; •what was the gifting pattern of the deceased donor over the donor’s lifetime; and
•what evidence does the charity have to give either
the family or the Court to evidence the desire of the donor.
The charity can take the position, (again as part of its due diligence) that the family member should make their claim through the courts. This provides some assurance that the claim is proper and has been properly adjudicated. The charity does not need to participate in the legal proceedings. Also, by the family member going through the Court process to “prove its claim” and have the Court determine what is fair and appropriate in the circumstances, this means they have had to provide sufficient evidence to the Court. All of the circumstances will have been reviewed, and a decision will have been made by the appropriate legal authority.
At the other end of the spectrum is the position that the gift will “be what it is” and if litigation is commenced by a family member, the charity will accept the Court’s decision and receive whatever gift
Advice to Advisors MAY 2016
9
When a
testamentary gift is challenged CHARITY
FAMILY
A “win-win” example After the Court decision, the charity and the spouse worked together to maximize the estate. This was achieved through a transfer of assets and a gift to the charity. In this way the gifts to both the spouse and the charity were enhanced by gifts of marketable securities and the use of the charitable receipt. The charity received a gift prior to the death of the spouse and so had funds much earlier to allow for growth on the initial gift and for the gift to be put to use (perhaps decades earlier) than would have otherwise been available. In the initial scenario in the Will, there was no guarantee of the amount the charity would have received.
An example from another case involved a long-time donor to a charity. There was a gifting plan that had been in place for many years and involved a significant gift on the death of the last of the donor or the donor’s spouse in the donor’s Will. The estate was to be held in trust for the use of the spouse during her lifetime with any amount remaining given to the charity after the spouse’s death. The spouse made a dependants relief type claim against the estate and argued that not only was there not sufficient money left in the Will for the spouse but that it should not be held in trust. In this case, the charity provided information relating to the gifting plan of the deceased to show the intention of the donor. The charity was prepared for whatever was to be the decision of the court. The spouse made her claim and the Court determined what was an appropriate amount of the estate for the spouse to have and directed how and when the spouse’s share of the estate would be distributed. The estate was directed to be paid to the spouse directly and not held in trust.
The charity would not have been able to work with the spouse afterwards if the “scorched earth” approach had been taken.
No matter what the results, when the courts are involved for the claim of a family member which affects a gift in a Will to a charity, there may still be better ways for matters to be dealt with before death. As mentioned in the article by John Poyser, having the entire family aware of the gift and the gifting strategy and working with the family as a whole may allow a charity to say “yes” to the donor while avoiding family fights downstream. Not to mention the significant benefits to the long-term relationship of the charity to the family and the future generations of potential donors in the family.
CONNECT 403 232 9485 | [email protected] | visit www.blg.com
Advice to Advisors MAY 2016
10
testamentary gift is challenged
Nancy Golding is a tax partner in the BLG Calgary office, as well as the National and Regional Leader of the Family Wealth Counsel Group. Nancy works exclusively in the areas of estate planning, and estate and fiduciary litigation. Nancy is one of the Canadian representatives on the STEP Worldwide Council.
CHARITY
FAMILY
NANCY GOLDING
“After the Court decision, the charity and the spouse worked together to maximize the estate.”
At times, the initial gratefulness and appreciation of a testamentary gift from a donor changes for a charity when that gift is challenged or a claim is made against the estate by a family member. The charity and the deceased donor may have been ad item as to the gift to be given on death even though it may have been part of a lifelong gift plan of the deceased but the family may not be in agreement.
Advice to Advisors MAY 2016
8
When a
testamentary gift is challenged CHARITY
FAMILY
but there is also an issue of the public’s perception of the charity and its reputation. Most charities do not wish to be seen to be involved in family fights or to be taking assets away from deserving family members. It can be a difficult decision to determine how far does the obligation of the charity go to its donor?
There is always a risk of a gift agreed upon with a donor being somehow thwarted on death but charities are at times in a precarious position if this is due to a claim against the estate from a family member. Charities not only have a fiduciary obligation to their donors to ensure a gift contemplated is completed.
Defining “charitable” behaviour is ultimately available to it in the end. This approach does not necessarily mean the charity is not living up to its duty to a donor. Family members do have legal rights to claim against an estate and the facts relied on often occurred over the course of years of family history which is usually not known to the charity.
There are a variety of responses from charities with differing results and consequences to a claim against an estate by a family member. There is a continuum of responses from no response at all to the charity being heavily involved in the litigation. Some charities take the “scorched earth” position that they will fight to the end to ensure a gift given is received. After all, if donors cannot count on a charity to fight for the gift, as the donor is no longer alive, then donors may think twice about giving a gift to that charity. Should the charity have to get involved in family affairs and relationships? A gift was given by the now deceased donor and based on the premise of testamentary freedom the charity should be able to rely on getting the gift. This is the rationale behind this type of response. There is a note of caution with this approach which may temper the lengths to which the charity will go to obtain the gift. In a recent case of an elderly spouse making a dependants relief type claim against her abusive husband’s estate, the residual beneficiary charity adopted a scorched earth approach. In the end, the widow received the estate and the charity paid the widow’s legal costs as well as all of its own legal costs after a lengthy battle. The charity was also admonished by the Court for not exhibiting very “charitable” behaviour.
With the latter approach a charity can still undertake due diligence to determine:
• what is in the estate; •what was the gifting pattern of the deceased donor over the donor’s lifetime; and
•what evidence does the charity have to give either
the family or the Court to evidence the desire of the donor.
The charity can take the position, (again as part of its due diligence) that the family member should make their claim through the courts. This provides some assurance that the claim is proper and has been properly adjudicated. The charity does not need to participate in the legal proceedings. Also, by the family member going through the Court process to “prove its claim” and have the Court determine what is fair and appropriate in the circumstances, this means they have had to provide sufficient evidence to the Court. All of the circumstances will have been reviewed, and a decision will have been made by the appropriate legal authority.
At the other end of the spectrum is the position that the gift will “be what it is” and if litigation is commenced by a family member, the charity will accept the Court’s decision and receive whatever gift
Advice to Advisors MAY 2016
9
When a
testamentary gift is challenged CHARITY
FAMILY
A “win-win” example After the Court decision, the charity and the spouse worked together to maximize the estate. This was achieved through a transfer of assets and a gift to the charity. In this way the gifts to both the spouse and the charity were enhanced by gifts of marketable securities and the use of the charitable receipt. The charity received a gift prior to the death of the spouse and so had funds much earlier to allow for growth on the initial gift and for the gift to be put to use (perhaps decades earlier) than would have otherwise been available. In the initial scenario in the Will, there was no guarantee of the amount the charity would have received.
An example from another case involved a long-time donor to a charity. There was a gifting plan that had been in place for many years and involved a significant gift on the death of the last of the donor or the donor’s spouse in the donor’s Will. The estate was to be held in trust for the use of the spouse during her lifetime with any amount remaining given to the charity after the spouse’s death. The spouse made a dependants relief type claim against the estate and argued that not only was there not sufficient money left in the Will for the spouse but that it should not be held in trust. In this case, the charity provided information relating to the gifting plan of the deceased to show the intention of the donor. The charity was prepared for whatever was to be the decision of the court. The spouse made her claim and the Court determined what was an appropriate amount of the estate for the spouse to have and directed how and when the spouse’s share of the estate would be distributed. The estate was directed to be paid to the spouse directly and not held in trust.
The charity would not have been able to work with the spouse afterwards if the “scorched earth” approach had been taken.
No matter what the results, when the courts are involved for the claim of a family member which affects a gift in a Will to a charity, there may still be better ways for matters to be dealt with before death. As mentioned in the article by John Poyser, having the entire family aware of the gift and the gifting strategy and working with the family as a whole may allow a charity to say “yes” to the donor while avoiding family fights downstream. Not to mention the significant benefits to the long-term relationship of the charity to the family and the future generations of potential donors in the family.
CONNECT 403 232 9485 | [email protected] | visit www.blg.com
Advice to Advisors MAY 2016
10
